1 | The Problem with IPStephan Kinsella | Feb. 18, 2011 IP Debate: John Templeton Foundations Big...

1 | The Problem with IP Stephan Kinsella | Feb. 18, 2011

“IP Debate: John Templeton Foundation’s Big Questions Debate series on Intellectual Property and Wealth Creation”

The Ohio State University Moritz College of Law Student Chapter of The Federalist Society

Moritz College of Law, Ohio State University, Columbus OH

March 3, 2011

The Problem with IP

Stephan KinsellaLibertarian Papers, C4SIF.org, Mises.org

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2 |The Problem with IP Stephan Kinsella | Feb. 18, 2011

The Libertarian Mentality► Humans are dissatisfied creatures. That is why we act: we

employ means that are causally efficacious at changing the state of affairs that would otherwise occur, so as to achieve ends and thus ameliorate felt uneasiness.

Ludwig von Mises, Human Action, 4th ed. (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1996), pp. 13–14, et pass.

► These means, and our bodies, are necessarily scarce, or rivalrous. This means there is the possibility of violent conflict when two people struggle over a given scarce resource. Hoppe: “[O]nly because scarcity exists is there even a problem of

formulating moral laws; insofar as goods are superabundant (“free” goods), no conflict over the use of goods is possible and no action-coordination is needed. Hence, it follows that any ethic, correctly conceived, must be formulated as a theory of property, i.e., a theory of the assignment of rights of exclusive control over scarce means. Because only then does it become possible to avoid otherwise inescapable and irresolvable conflict.” –A Theory of Socialism and Capitalism, p. 235 n. 9.


The Libertarian Mentality

► In other words, libertarians favor peace, cooperation, and prosperity, and thus the assignment of property rights so that resources may be used peacefully and productively and cooperatively.

► In particular we favor the assignment of property rights as follows: each person owns his own body; and he owns resources that he homesteads or that he acquires by contract from a previous owner.


The Libertarian Mentality

► This is why we oppose patent and copyright. We views the grant of such artificial rights as statist, socialist, as theft.

► This is because these rights grant to third parties—inventors, artists, creators—a veto right over how owners use their own property. This makes the innovator a co-owner, with the original owner, of the owner’s property.

► This is theft. It is redistribution of wealth.► It is that simple.► The patentee, for example, acquires a partial ownership right in

others property But he is not a homesteader, and has no contract, and the owner has not

committed any kind of tort of crime to justify weakening or redistributing his property rights


The IP Mistake

► How could libertarians and other advocates of property rights, capitalism, and free markets have been bamboozled into thinking that anti-competitive monopolistic grants of privilege by a criminal state be justified?

► Let’s take a look at the history.


Sordid Origins

► “The monopolies now understood as copyrights and patents were originally created by royal decree, bestowed as a form of favoritism and control. As the power of the monarchy dwindled, these chartered monopolies were reformed, and essentially by default, they wound up in the hands of authors and inventors.” Eric E. Johnson, “Intellectual Property’s Great Fallacy” (2011)

► Copyright: Queen Mary creates the Stationer’s Company in 1557, with the exclusive franchise over book publishing monarchy’s desire to control the press Charter expired; publishers asked for statute Statute of Anne 1710: gave copyright to authors instead Authors happy to be partially freed from state censorship


Sordid Origins: Patent

► English Parliament enacts the Statute of Monopolies 1624 reaction against monarch’s issuing of “letters patent” granting

monopolies to court favorites in goods or businesses which had long before been enjoyed by the public► Other notorious uses ► Piracy authorized for Sir Francis Drake by Letter Patent, 1587► Real piracy, not file sharing

Statute banned letters patent generally but carved out an exception for novel inventions


IP in America

► Patent and copyright clause included in Constitution, 1789► Not based in natural law

Tom W. Bell, Intellectual Privilege: A Libertarian View of Copyright► Based on assumption that it’s “necessary” or generates net

innovation/creativity/wealth


IP in America► Studies since cannot verify this—or condemn IP

“No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society. The best he can do is to state assumptions and make guesses about the extent to which reality corresponds to these assumptions. … If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one.”► Fritz Machlup, An Economic Review of the Patent System (1958)

See also Kinsella, Yet Another Study Finds Patents Do Not Encourage Innovation

► My estimate: $42B net loss a year in US from patents alone► Burden on proponents to justify it

I invite my opponent to tell us the net benefit of the patent system: what is its cost; what is the value of extra innovation it induces; what is the cost of innovation it suppresses; what is the net?► Kinsella, There’s No Such Thing as a Free Patent


IP in America► Arguably unconstitutional because does NOT promote progress

of science and arts► In the meantime becomes part of fabric of western capitalism

Starts being called a “property right” “Those who started using the word property in connection with

inventions had a very definite purpose in mind: they wanted to substitute a word with a respectable connotation, “property”, for a word that had an unpleasant ring, “privilege”.”► Fritz Machlup & Edith Penrose,

The Patent Controversy in the Nineteenth Century (1950)► See Kinsella, “Intellectual Properganda”

► IP justified now on grounds that it is a natural right (despite original purpose) or on empirical grounds (despite lack of evidence) Similar to minimum wage: economists universally recognize it is

counterproductive but hard to kill politically


IP in the Constitution► Libertarians and propertarians now assume “intellectual property” is

part of a property rights system► After all, the Constitution permits IP

But then the Constitution was a centralizing, power-grabbing coup It also condoned or permitted slavery, paper money (and inflation and the

business cycle), judicial supremacy, taxation, tariffs, capital punishment, conscription, war, corruption, domination, drug prohibition, mass murder, war crimes, torture, Guantanamo, Waco, Ruby Ridge, the evil Abraham Lincoln, suspension of habeas corpus, imperialism, eminent domain, state-enforced bigotry, racism, and misogyny

Spooner: the Constitution “has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist” –No Treason, No. 6: The Constitution of No Authority (1867)

The Constitution is utterly unlibertarian. We libertarians have to wake up and stop worshipping the Constitution as quasi-libertarian and early America as proto-libertarian. They weren’t.

As Rand might say, wishing doesn’t make it so.


Speaking of Rand…

► Huge influence► Part of the movement to describe patent and copyright as

“property rights”► “Patents are the heart and core of property rights.”► But then, she initially favored eminent domain because the

Constitution endorses it. Rothbard’s correspondence


Intellectual Monopoly

► Despite propaganda patent and copyright are still artificial state monopolies

► The goal of law is justice and property rights, not tweaking incentives to produce innovation or maximize wealth

► The purpose of property rights is to fairly assign owners to scarce resources so that they may be used peacefully and productively instead of being fought over To reduce conflict

► Human action uses scarce means to achieve ends, but it guided by ideas knowledge, information, recipes Property is necessary in the scarce means for productive use and

cooperation Not in information (cake example)


Intellectual Monopoly

► Patent and copyright are ultimately enforced against scarce goods Money, bodies

► IP rights are merely disguised transfers of wealth from owners to innovators and others who receive a state privilege Who did not homestead the others’ property or make a contract with

them► IP undermines legitimate property rights

Propertarians are anti-IP just as they are anti-tax and anti-redistribution


Competition, Learning, Emulation

► The market creates abundance in the face of scarcity of resources Tries to reduce scarcity of material things

► The body of human knowledge grows Widens the universe of choices of means AND ends It is non-scarce “there is no discovery—not even the most minor intellectual advance—in

any corner of the world that does not soon become known from one end of the earth to the other, like liquid in connecting vessels that seeks a common level.” –Maria Montessori, Education and Peace (2007 [1937]), p. 42.

► Artificially imposing scarcity on learning, emulation, knowledge is suicidal Kinsella, Intellectual Freedom and Learning Versus Patent and Copyright


Legislation and Law

► In 1884 James C. Carter wrote an attack on David Dudley Field’s attempt to (legislatively) codify New York’s common law. Carter opposed replacing case law with centralized legislation. caselaw precedents are flexible and allow the judge to do justice, while

statutes are applied literally, even where injustice is done or the legislator did not contemplate this result.

one of the worst effects of legislatively codifying law–replacing organically developed law with artificial statutes–is that it changes the role of courts and judges from one in which the judge searches for justice into mere squabbles over definitions of words found in statutes.


Legislation and Law

“At present, when any doubt arises in any particular case as to what the true rule of the unwritten law is, it is at once assumed that the rule most in accordance with justice and sound policy is the one which must be declared to be the law. The search is for that rule. The appeal is squarely made to the highest considerations of morality and justice. These are the rallying points of the struggle. … But when the law is conceded to be written down in a statute, and the only question is what the statute means, a contention unspeakably inferior is substituted. The dispute is about words. The question of what is right or wrong, just or unjust, is irrelevant and out of place. The only question is what has been written. What a wretched exchange for the manly encounter upon the elevated plane of principle!”► James C. Carter, 1884, The Proposed Codification of Our Common Law: A

Paper Prepared at the Request of The Committee of the Bar Association of the City of New York, Appointed to Oppose the Measure


Legislation vs. Law

► Bruno Leoni: there is much more certainty in a decentralized legal system than in a centralized, legislation-based system.

► When the legislature has the ability to change the law from day to day, we can never be sure what rules will apply tomorrow.

► By contrast, judicial decisions are much less able to reduce legal certainty than is legislation. the position of common-law or decentralized judges is fundamentally

different from that of legislators in three respects. ► 1 judges can only make decisions when asked to do so by the parties

concerned. ► 2 the judge's decision is less far-reaching than legislation because it primarily

affects the parties to the dispute, and only occasionally affects third parties or others with no connection to the parties involved.

► 3 a judge's discretion is limited by the necessity of referring to similar precedents.


Legislation and Legal Certainty

► Legal certainty is more attainable in a relatively decentralized law-finding system like the common law, Roman law, or customary law, than in centralized law-making systems where legislation is the primary source of law.


Negative Effects of Uncertainty

► Legislation tends to interfere with agreements that courts would otherwise have enforced and thereby makes parties to contracts less certain that the contract will ultimately be enforced. Thus, individuals tend to rely less on contracts, leading them to develop

costly alternatives such as structuring companies, transactions, or production processes differently than they otherwise would have.

► increased uncertainty in legislation-based systems also increases overall time preference. When time preferences are lower, individuals are more willing to forgo

immediate benefits such as consumption, and invest their time and capital in more indirect (i.e., more roundabout, lengthier) production processes, which yield more or better goods for consumption or for further production.


Negative Effects of Uncertainty

► Any artificial raising of the general time-preference rate tends to impoverish society by pushing us away from production and long-term investments.

► Yet increased uncertainty, which is brought about by a legislation-based system, causes an increase in time-preference rates because if the future is less certain, it is relatively less valuable compared to the present.

► higher time-preference rates also lead to increased crime► As a person becomes more present oriented, immediate

(criminal) gratifications become relatively more attractive, and future, uncertain punishment becomes less of a deterrent.


The Proliferation of Laws

► A continual outpouring of artificial laws has many insidious effects. special-interest groups become successful, and others become necessary

for self-defense. Soon a legal war of all against all begins to emerge. Thus we are led into

conflict rather than cooperation. With so many laws, it becomes impossible for each citizen to avoid being

a lawbreaker — especially given the perverse rule that "ignorance of the law is no excuse.”

We are all lawbreakers Discredits the law Allows the state to selectively and arbitrarily enforce whatever law is

convenient against any "troublemaker."


The Proliferation of Laws

► Italian legal theorist Giovanni Sartori pointed out that when legislation is thought of as the primary source of law, citizens become more accustomed to following orders They become more docile, servile, and less independent. Once people lose their rebellious spirit, it is easier and more likely for the

government to become tyrannical.► The Role of Commentators and Codes

Private codification Blackstone, Coke, ALI Restatements

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